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True Believer

Craig Heller sees the future of downtown -- and it works

From his office at 1006 Olive St., Craig Heller heads north on 10th Street, walking about a block to an 11-story brick building still best known as the Merchandise Mart Annex. Built in 1913, the annex is connected by tunnels to the next-door Merchandise Mart, where, during the heyday of the St. Louis garment industry, manufacturers showcased their shoes, shirts and textiles.

When Heller bought 417 N. 10th St. two years ago, the building had been vacant for seven years, filled with castoffs from the building's later incarnations as a print shop and a lens-grinding business. Obsolete computers were stacked high on the sixth floor. Workers have since cleared out the debris, and for the past year they have been busy transforming the building's storage and manufacturing spaces into open, airy loft condominiums, ranging in size from 1,530-3,800 square feet and priced from about $120,000-$280,000. The customized spaces are furnished with the kind of contemporary details typical in a big-city loft: stainless-steel appliances, refurbished original maple floors, exposed brick walls and 7-foot-high windows offering a sweeping view of the heart of downtown. Heller plans retail spaces at the street level of his building; floors two and three are set aside for commercial office space.

Before Heller can make it inside his building this summer morning, a man who works nearby stops him on the street. "Let me know if something opens up," the man requests. Heller nods, then moves on. It's a question he often fields these days, but anyone interested in buying in the Merchandise Mart Annex, renamed the 10th Street Lofts, is out of luck. Last fall, all 31 units sold out in six weeks. Seventeen sold in a single day. The first residents will be moving in Sept. 11.

Heller's project has been closely watched by virtually everyone with an interest in downtown real estate. After years of unrealized expectations, the housing market in downtown St. Louis is showing signs of taking off, and Heller's loft building is among the projects leading the way. Hundreds of potential owners and tenants have put their names on waiting lists. Rents are rising in the Washington Avenue loft district, 28 condominium or rental projects are planned or actively under construction downtown, and speculators and developers have bought up dozens of empty buildings.

Heller predicts housing will transform downtown St. Louis -- creating a vibrant 24-hour urban atmosphere -- in a way many big-ticket projects such as the Trans World Dome, Kiel Center and the Gateway Mall have failed to.

A Southern Illinois native, Heller, 39, moved to St. Louis in 1989 after living around the country while working as an airline pilot, including Minneapolis and Lancaster, Pa. Now semiretired as a pilot, Heller still flies once a month for Northwest Airlines, but he spent much of the 1990s as president of Pyramid Construction, which built hundreds of homes in the city, from gut rehab to historic replicas. He sold his share of the company about two years ago to partner John Steffen to form his own company, Loftworks, that focuses on loft conversions, mostly downtown but also in Lafayette Square. His 10th Street Lofts building cost about $7.5 million to renovate, and he now owns a total of seven buildings downtown.

Not only did his project involve delving into an unknown market as the first for-sale loft condominiums downtown, it meant enlisting the help of commercial union contractors who'd never built a project like it. "I guess nobody really wants to be the first," Heller says. "You can't sell for as much; you're testing the market. Being the first doesn't bother me at all. I wanted to be the first.

"As a for-profit developer, I intend to make money and a living doing this, but I also do it because I want to see St. Louis live up to its potential. It will never live up to its potential if downtown continues to have this image of the central business district. People go to work, and it's OK if you go down for a Cardinals game or the Rams, but other than that, it's nothing. Why can't it be like Chicago? I'm not saying a humongous downtown like they have, but why can't it be like Minneapolis, where 30,000 people live downtown and they're building like crazy. Why can't it be like Portland, Seattle, Denver, where it is the place to be because of the great old buildings, the type of lifestyle? What we want to create is a neighborhood that is truly walkable, a true urban village."

A furnished model at Heller's project on 10th Street was one of 20 stops at existing and planned residential projects on last year's downtown-development tour. The September tour drew more than 2,000 people. The Downtown St. Louis Partnership compiles a list of people interesting in buying or renting downtown; at last count, it was 650 and growing every week. Another downtown-development tour is scheduled for noon-4 p.m. Sept. 10, beginning at Windows on Washington at 15th and Washington, and a big turnout is expected again.

The apparent demand for a downtown lifestyle is fueling rising rents, skyrocketing prices for empty buildings and a frenzy of planned residential projects. The price of some empty buildings, which sold for less than $1 a square foot in the early 1990s, has risen 10-fold. Heller says he bought his first building, the Merchandise Mart Annex, two years ago for just $1.70 a square foot; he bought his most recent building for $15 a square foot.

In the rental market, the average rent downtown has risen by 16 cents a square foot in less than a year. That means that a 1,200-square-foot loft renting for $684 in the fall of 1999, for instance, is renting for as much as $876 today. Most of the increase has occurred in the Washington Avenue loft district -- meaning the rents have actually increased far more in that small fraction of the market. Some artists, who were among the first to move to Washington Avenue, are being squeezed out by the escalating rents.

About 8,385 people are currently living downtown, says Kevin Montgomery-Smith, residential-marketing manager for the Downtown St. Louis Partnership. The partnership, which recently conducted a detailed analysis of existing residential buildings, identified 5,905 residential units downtown. That includes a wide range in the types of housing, from owner-occupied townhouses in Columbus Square at Seventh and Biddle streets to apartment dwellers at Mansion House at 300 N. Fourth St. to lofts on Washington Avenue to three complexes of subsidized housing owned by the St. Louis Housing Authority. Most of the units, 4,198, are market-rate, meaning they are unsubsidized, and most residents live in high- or mid-rise apartments. Only 4 percent of the total downtown population currently lives in loft conversions.

With the 28 residential projects -- some in the planning stages, some under construction -- the available housing in downtown St. Louis could rise by 1,293 units, an increase of nearly 22 percent. And 490 of those are already under construction. The average rent for units under construction is $947, and lofts and condominiums under construction range in price from $110,000-$740,000. Montgomery-Smith sees several factors fueling interest in downtown living, including 92,000 workers downtown and the low price of loft conversions, which are a bargain compared with their counterparts in other major cities. At about $99 a square foot here, they're far cheaper than those in Dallas ($146.82), Atlanta ($206.10), Denver ($280.86) or even Detroit ($114.48.)

Housing could fill in the blanks downtown, Montgomery-Smith says. The city has "these big stones thrown in the river, like the TWA Dome, and what you're seeing now are the little connecting islands, the little stones being thrown in to connect Busch Stadium to the Kiel Center, Cupples Station and the (federal) courthouse."

He believes many of those looking to move downtown have soured on the long commutes on traffic-choked roadways like I-64 (Highway 40) and I-70 and are looking for a more interesting urban lifestyle. "There's a suburban backlash. People my age -- 30-40 -- remember the suburbs as being a place where they lived at the end of the road and had creeks and ponds and played football and baseball. Now the suburbs don't hold true to that nifty nostalgic dream, and the city holds more of a neighborhood feeling, and downtown provides more of an urban feeling."

"I think the economy has a great part to do with it," Montgomery-Smith adds. "The developers have seen they can break the threshold for a profit. Also, there's the market. The idea of selling condos really was a pipe dream two years ago. Craig (Heller) really was a risk-taker. He really is the first one to sell a condo unit downtown. Now people see the value, and they know if they can get in quick, they will see a return on their investment. It's like a rare jewel. It is not going to depreciate."

Judy Korn, a Realtor with Re/Max Properties West who was the listing agent for Heller's 10th Street Lofts, says the buyers ranged in age from 24-60 and that about 20 percent of them were from outside the St. Louis area. About a quarter of them said they were self-employed or telecommuted from home.

"We also have people who work in Fenton, in Clayton, people who work in Illinois," Korn says. "What attracted them was the space and the opportunity to live someplace they haven't lived before. And the value -- they couldn't afford that much space in the cities they were coming from. You can't get a 3,500-square-foot loft in Chicago for $350,000 with a garage and a condo fee. I think they like the convenience and are attracted to being part of the downtown renaissance."

Despite all the hype surrounding the Washington Avenue loft district, the city has relatively few lofts to offer. There are just 266 existing loft units, according to the Downtown St. Louis Partnership. And the high demand has resulted in a 96 percent occupancy rate, which, in real-estate parlance, means anyone hoping to rent a loft had better get his or her name on a waiting list.

Heller fields calls every week from would-be urban dwellers searching for lofts. "We're probably the only city that has a loft district without a lot of lofts," he says. "People call me and they feel silly. They say, 'I've been looking all over for a loft and I don't know why I can't find something.' There is not much out there, and the stuff that is, is snapped up."

That could change soon as several developers step forward to meet the demand:

· One project that is being closely watched is located at 1501 Locust St., in what used to be the General American Life Insurance building. Chicago developer Jay Case recently completed the display unit in the Terra Cotta Lofts, which, with 98 units, will be more than triple the size of Heller's loft building. The building, built in 1910, will feature all-new plumbing, windows and electrical systems. Prices range from $120,000-$270,000 for the condos, which are 980-1,732 square feet. With 12-foot ceilings, big windows and some exposed brick, the condos include hardwood floors, tiled bathrooms, Berber carpet in the bedrooms, white cabinets and stackable washers and dryers, as well as other appliances. Secure, enclosed parking is available next door, and a skybridge will connect the garage to the lofts. Construction will begin after 35 units are presold.

Case, who graduated from the Washington University School of Law in 1980 and has developed residential and commercial projects in Chicago, says the failure of a couple of other planned loft buildings has made his job more difficult: "We have some convincing to do that we are for real and we can deliver a quality product."

· At the old Edison Bros. warehouse, 400 S. 14th St., a very different type of project is taking shape. A Sheraton hotel, called the Breckenridge, is under construction on the lower floors, and upscale condominiums are planned for floors nine through 12. Phil Estep, historic-renovation specialist at Gundaker Commercial Group, says the condominiums are being marketed to empty-nesters interested in city living. The building will have its own parking, deli and in-house security. Estep says prices for the 80 units start in the low-$200,000 range, with a minimum of 1,500 square feet. The building features a rooftop health club, swimming pool and hotel amenities. Construction workers are currently cutting an atrium in the center of the building to allow light to come into the rear of the condo units and the hotel. Estep says the project already has 20 reservations, and construction should begin on the residential portion at the end of this year.

· At 1221 Washington Ave., in the loft district, Tim McGowan and his four brothers are in the final stages of converting the building into 13 loft apartments on floors four through seven. The one- and two-bedroom units average 2,000 square feet, with all-new appliances, electric and plumbing, as well as exposed wood beams and the industrial decor and high ceilings tenants expect in a loft. The building is slated for completion in September, and all 13 units have been preleased. At 1324 Washington, the McGowans plan 20 luxury condominiums with office and retail on the first three floors. Work on the model unit should be finished in October, Tim McGowan says, and reservations have already been accepted for seven of the 20 units. The McGowans own a total of eight buildings downtown.

· Pyramid Construction stepped in and bought the building at 703 North 13th St. after the previous condo project fell through. Matt O'Leary says the Elder Shirt Lofts will include a central public atrium and 27 residential loft condominiums ranging from $200,000-$500,000. The top-floor units will include two-story spaces and rooftop decks. He says the display unit should be ready in three months.

· In the Laclede's Landing commercial and entertainment district, plans for a 280-unit apartment complex are slowly materializing. The project is being carried out by Lincoln Property Co., a national apartment developer. Tom Purcell, president of the Laclede's Landing Redevelopment Corp., says offers have been made to property owners, including the building that houses Mississippi Nights, to secure the needed land, and, if necessary, the city will initiate eminent-domain proceedings. Construction on the complex of four-story buildings, the first new residential construction on the riverfront since the Civil War, probably won't be complete for 18-24 months, Purcell says.

· Others are embarking on smaller-scale projects. At 1004 Olive St., John Knoll and his partner, John Baluka, have plans for six loft condos in the old Ludwig Aeolian building, renamed the Ludwig Lofts, and will begin construction after reservations are received on all six units. The standard unit will include a kitchen with all appliances, two full baths, some exposed-brick walls, smart-home technology that will allow homeowners to call in to their computers to do such things as turn lights on or off, and a balcony off the master bedroom. During last year's downtown-development tour, Knoll says, "There wasn't a whole lot of stuff (available). A lot of people bought buildings but were sitting on them. Craig Heller sold every single one of his lofts, and that was the major accomplishment. This year, there's a lot more developers ready to show their stuff. I think this year's tour will be really big."

Despite all the activity, St. Louis is a late bloomer compared with other major cities that have experienced downtown revivals. Perhaps no city has suffered the effects of suburban migration more than St. Louis, which, at the turn of the century, ranked among the five most populous cities in the nation. The city's population peaked at more than 850,000 in 1950 -- and it's been downhill ever since. The most recent U.S. Census estimates put the city's 1999 population at just 333,960, a decline of nearly 5,000 from just a year earlier. And the region as a whole has served to epitomize the notion of sprawl, with a slow-growing population that has continued to spread, gobbling up more and more undeveloped land. The region's population grew by just 3.4 percent from 1970-1990, whereas the land it occupied grew by 58 percent.

St. Louis once led the nation in the number of historic-rehab projects, but that movement ground to a halt in the mid-1980s, and as the exodus of city residents continued during that time, the city itself did little to stop it. Deputy Mayor Mike Jones says he's not surprised that St. Louis is playing catch-up. "We're a Southern city," Jones says. "We think we're Midwestern, but we are a Southern city. This is not a real aggressive place. I can't think of anything we've been on the cutting edge of in 50 years. We're more conservative in nature. And we've had a metropolitan area that has not substantially grown in the last 20 years relative to new people moving in. Cities draw their energy from immigrants, like countries do. That's where new ideas come from, a different energy to blend with the historical context, a new dynamic. We have not had a lot of that kind of growth in the last 20 years."

In the early to mid-'80s, however, entire neighborhoods were transformed through the use of the federal historic tax credit program -- from the Central West End to Soulard to huge projects like the renovation of Union Station. The federal Tax Reform Act of 1986, however, severely curtailed the program, sending many small and large urban developers in St. Louis out of business. Historic-rehabilitation projects ground to a halt.

Jones says there were things the city could have done both to spur development and to stop its declining population but did not. The city could have created discretionary development funds to buy some of the cheap buildings on Washington Avenue during the down cycle, then sold those buildings to developers when the market improved. But the city -- which, until last year, was the largest city in the country without a planning commission or planning department -- lacked the kind of visionary planning needed to react to these problems and take the lead, Jones says

"I don't know of a major city that didn't have a planning department. Some have great ones, some have bad ones, but they all have one," Jones says. "We didn't. For whatever reason, 25 years ago we got rid of the planning commission and the planning department. We created community development and eliminated planning. We lacked the institutional capability to think about and deal with these issues. (The city) could have started to think about what ought to be the responses to these negative trends and how do you mitigate them, and develop a consensus around what were new solutions or prospective reuses of buildings or land." That didn't happen. "To not have a serious planning effort means you really don't have a cerebral function for city government," Jones says. "Nobody is thinking past picking up the garbage last week."

Developers and city officials alike say one factor more than any other is driving the downtown rebirth. And it came about not because of the city but because Jerry Schlichter, a private lawyer, discouraged by the city's decline, put together a coalition -- including the Landmarks Association, the Regional Commerce and Growth Association, and the Downtown St. Louis Partnership -- to try to find a solution. The result of that effort was the state's historic tax credit program, which was approved by the General Assembly and Gov. Mel Carnahan in 1997.

Schlichter says it was the city's continuing decline that prompted him to organize an effort to push for the credits, and the initiative gained the support of Main Street organizations and small towns across Missouri. "The Tax Reform Act of 1986 decimated the city," Schlichter says. "That was the most damaging event for the city in its recent history. There's a graph that shows from 1986 to the mid-'90s, there was a 96 percent decline in historic rehab in Missouri.... It was virtually extinct."

The program, which began in January 1998, provides a state-income-tax credit for 25 percent of the cost of a rehabilitating an eligible historic structure. To qualify, the building must be included on the National Register of Historic Places or be located in a neighborhood that is listed on the National Register, such as Washington Avenue, Benton Park, Old North St. Louis or the Shaw neighborhood. The rehab must also be consistent with historic standards. The credits are available to individual homeowners and developers alike. The credit can be applied to the current year's income taxes, the past three years' taxes or the next five years'. The credits can also be sold. Banks, for instance, buy the credits at a small discount and sell them to customers who may need the credits. Virtually all of the downtown residential projects, proposed or under construction, as well as big-ticket developments like the convention-center hotel, have taken advantage of -- or intend to use -- the tax credits. Nearly $18 million in credits have been issued for projects in the city of St. Louis in the past year-and-a-half, and by 2002, the state Department of Economic Development estimates, as many as $98 million in credits will have been issued for rehab within the city limits.

With the new state-tax credits, things began to change. "The International Fur Exchange Building was literally coming down; the headache ball was knocking holes in the brick, literally," Schlichter recalls. "Charles Drury heard about the possible passage of this legislation and took an option on the property. After the law passed, he exercised the option, bought the property, stopped the headache ball and restored and rehabbed it into a $20 million hotel from what would have been a surface parking lot. We all know how long Cupples Station had been vacant. We all know how long people have talked about Washington Avenue really happening. We all know how long we have talked about a convention hotel."

Schlichter describes the aftermath of the law's passage as a "compete turnaround, both in the reality on the street and in the sense of optimism that has developed. The battles that were being fought three years ago involving older buildings were about fences' being put up and demolition permits. Now what's happening with older buildings is, we're seeing construction cranes and rehab going on all over. I'm convinced that if the law is not changed in the Missouri Legislature, the city of St. Louis, in two to three years, will lead the nation again in historic rehab."

Zack Boyers, assistant vice president at Firstar Bank, says the credits have given old buildings new life. Firstar, the Milwaukee-based banking giant that took over St. Louis-based Mercantile Bank this year, is financing a host of residential projects downtown, including Craig Heller's 10th Street Lofts, the Terra Cotta Lofts and the McGowan building on Washington Avenue. "The state historic tax credits makes projects that are still to some extent economically unfeasible, it makes them feasible. It provides a cushion, an incentive for a market that to date is as uncertain as it has been, the downtown residential market. Those credits have been the catalyst for over 90 percent of the development efforts taking place downtown right now."

One reason Firstar is involved in many of the projects is that the bank launched the Missouri Tax Credit Clearinghouse, which buys and sells the credits to its customers. Although the bank is convinced there is a pent-up demand for downtown housing, the market is still uncertain, and the credits help provide a cushion that makes lending possible.

"The market analysis does exist," Boyers says. "I can tell you numbers about going rents and how quickly 31 lofts sold in the 10th Street Lofts, but it is not voluminous enough to be a precedent," Boyers says. "You know if you go to West County and you put up condos, the absorption period" -- the time it takes for properties to be sold or leased -- "is a matter of months. You don't know downtown, because you've never sold 100 condos downtown. The market facts exist, but there aren't enough of them, so it does continue to be risky. Let's say 200 condos sell for an average of $200,000 apiece. We know there is additional demand, but is it 500 more units or 5,000 more units? There are waiting lists for loft-condo projects, and there are waiting lists at loft-apartment projects. Hopefully those amount to something and it turns out that demand really is there, and pent-up."

Carolyn Toft, president of the Landmarks Association, agrees that the state credits, as well as federal historic tax credits available to developers for certain commercial and rental projects, have jump-started downtown restoration: "I don't know of a single building proposed, under construction or nearly completed in downtown that is not taking advantage of either one or both of the historic-rehab credits. The repercussions have been terrific."

And she sees residential development as the key to the city's future. "St. Louis is a little late getting into the game," Toft says. "Minneapolis has some 35,000 people living downtown, and it's been a patient, steady determination. There's been lip service in St. Louis for that for a long time, but there hasn't been any dedicated, serious, incremental action.... Without the residential population base, downtown in this century will be a hard thing to keep going."

Toft, a longtime critic of public investment in big-ticket sports arenas, says that when it comes to fixing downtown's problems, "Salvation through sports won't cut it."

For now, there are no guarantees. Observers say the growth depends on a continuing strong economy and a continuing state-tax-credit program that isn't tinkered with or capped by Missouri legislators. Some developers and city officials also worry that speculation -- inherent in a hot real-estate market -- could dampen the forces of supply and demand that are currently at work, making buildings too costly to rehab or leaving them empty too long.

Michele Duffe, former director of real estate for the St. Louis Development Corp. and now project manager for Siedlund Co., a real-estate development and consulting firm, watched the beginnings of Washington Avenue loft development in the early 1990s, when property sold for less than $1 a square foot. Though prices have risen dramatically, neither the buildings themselves nor their surroundings have changed much. "My main concern is the speculation, and people not getting building permits and doing the buildings properly," Duffe says. "Some people are playing by the rules; others are not."

Tim Tucker, a project manager for Historic Restoration Inc. on the convention-center-hotel project, remembers the fledgling movement toward a loft district on Washington Avenue in the early 1990s, when cheap prices led to a buying frenzy. The huge International Shoe Co. building, for instance, had a price tag of $2.5 million, but he and Bob Cassilly purchased it in 1993 for the bargain-basement price of $550,000, about 69 cents a square foot. It later was transformed into the wildly popular City Museum. "That's how depressed it was," he says. "There was no money to fix these buildings up." Many experienced urban developers went out of business after the 1986 bust that came when federal tax credits were restricted, and the cheap prices lured "people who weren't developers who then tried to develop them."

The perceived demand today, coupled with the state historic tax credits, has led to more of that, he says. "Right now there is a learning curve," he says. "There are economic lessons that are in the process of being taught; people are figuring out exactly how much it costs to renovate these buildings because there isn't much of a history. People are going to figure out how much they can afford to pay for these buildings. People will either see you can't really pay more than $10 or $12 or $18 a square foot in these buildings and have an economically viable project. I think there will be a market adjustment and the prices will come down."

In the 1990s, Washington Avenue was populated largely by a small group of artists and other professionals who created livable space cheaply in the warehouse buildings. Now, Tucker says, the dynamic is changing, and rising rents are displacing some of the artists and nightclubs that created the district. "I always describe the loft district as a baby in its infancy, cute and cuddly. Now it's going through its adolescence -- it's a little uglier, the economic displacement and the public attention with regard to the infrastructure, and you've got the speculators and the developers. It's truly a dynamic organism."

Kurt Perschke, a sculptor, moved into a loft on Washington Avenue four years ago. He did rehab on some raw loft space in exchange for low rent at the Mary Muffet building at 1627 Locust St., but when the building changed hands, he was evicted. He says many artists are seeing their rents hiked, and they're moving out. "Part of what the developers are selling is the image of Washington Avenue, and part of that image is this group of artists, so when you go to Tangerine or the local bars, that's who you'll be hanging out with," says Perschke. "That's the appeal when I talk to friends at Metropolis who want to move downtown. By the time they get there, the artists will be gone.

"I'm not saying this is not a normal process in the city," Perschke adds. "Artists move in, develop it to a certain standard; money comes in, and they move out. What's going on on Washington Avenue is not that process. The rents that are moving up are speculative. There's not really a lot of people developing that area. There are tons of empty buildings. There is no reason why there can't be room for artists."

Jones, deputy mayor, views speculation as the biggest threat to the potential residential building boom -- and he points a finger at Sam Glasser and David Jump, who control at least eight buildings on or adjacent to Washington Avenue. They have drawn Jones' ire for more than doubling the rent on one of their tenants, the Downtown Children's Center. Says Jones: "Anyone who would do that to a daycare center doesn't deserve any consideration from the city for nothing."

One of the Glasser/Jump buildings houses the 40-unit King Bee Lofts, and another, the Lucas Park Lofts, is being converted from apartments to condos and renamed the Knickerbocker Lofts, according to Glasser. The others, Glasser says, are in various stages of development. At 1511 Washington Ave., for instance, he says, "depending on the demand, it will be either office or high-end luxury condominiums." At 1430 Washington Ave., he says, "we're in the process of looking for some restaurants and retail tenants.... Our brokers are showing space at this time. I'm not going to do anything until I have a deal." And at the Mary Muffet building, he says, he has filed a request for a building permit to convert it into a 32-unit loft apartment building.

Jones is skeptical of Glasser's development plans. "They own damn near everything on Washington Avenue. Tell me one building Sam Glasser and David Jump have done on Washington Avenue," he says. "They've been here as long as I've been sitting here, and I've been here three years. Craig Heller and Jay Case bought properties and moved on them.... A serious developer interested in bringing a product to the market has had an exceptional environment to do so in the last two to three years. So if you have control over prime real estate and you call yourself a developer, why haven't you?"

Through code enforcement, Jones says, the city needs to "increase the cost of speculation for people who just buy and hold and sit on buildings. The city cannot afford to let them do that for free."

Glasser, who declined to comment on Jones' remarks about the daycare center, says that developing properties takes time. He denies he is a speculator: "I consider it a very pejorative word. People are in business to make money. We bought these buildings and intend to develop them, but that doesn't mean if someone came along and offered me the right prices, I wouldn't sell them.... If I bought a building for $1 million and somebody offered me $10 million, I'd sell -- wouldn't you?"

Not everyone is worried about speculation. Tom Reeves, executive director of Downtown Now and a former Mercantile Bank executive, would rather focus on what is already happening downtown, like the $17 million Washington Avenue streetscape project, which will bring wider, landscaped sidewalks to the loft district. He says an increased code-enforcement effort by the city, announced in June, will ensure that property owners maintain their buildings to code and comply with life and safety issues so that a new project isn't stuck next to a derelict old building. "If you're putting a half-million into your building," Reeves says, "you would like to see that your neighbors on either side are at least doing a minimal effort."

And, he says, speculation can be a good thing. "It can slow things down a little bit and artificially raise prices, but at the same time it shows that somebody sees future value in the property and prices may go up, and that's coming after 30 years of nothing and properties being worth zero," Reeves says. "People aren't going to speculate where it's dead. It confirms, from another perspective, that things are happening. I would rather see everybody develop their buildings tomorrow, but the reality is, capitalism is capitalism."

Virtually everyone agrees that what is currently happening on the downtown housing scene is just a start. They talk about the "chicken and egg" dilemma: Many people won't move downtown unless there are more street-level retail businesses and restaurants to serve them, but many businesses won't survive downtown unless there's a "critical mass" of permanent residents.

Barbara Geisman has lived in downtown loft spaces since 1992 and served as project manager on the University Lofts, a 26-unit building at 1627 Washington Ave. that includes a mix of market-rate housing and income-restricted units. The entire building was leased in two months, and it opened to residents in February. One man, after learning the building was full, offered to pay double the rent just to get in, she says, though a last-minute vacancy got him in at the regular lease rate.

"What's important is that the buildings get done to a high-enough standard that the people who move into them and are spending money to live there feel comfortable living there," she says. Those who currently own buildings "need to get going on doing them so things don't get stalled.

"Right now there are many more people who want to rent and buy a loft than there are lofts to buy and rent," adds Geisman. "We can't lose that momentum while we've got that interest in the market.... People started trickling in in the '90s, and back then it was sort of a conversation piece. It was something weird somebody might do, but it wasn't like there was a whole bunch of people who wanted to do it, too." That has changed. But during last year's development tour, Geisman says, "It was, like, 'check back in a year,' but most people want to move now."

Kevin Montgomery-Smith of the Downtown St. Louis Partnership says the projects that are already under construction have the potential to add 1,337 residents downtown, and planned projects could add another 907 people. With the existing residents, the downtown population is still shy of the 12,000-15,000 threshold needed to lure some national chains, like upscale retailers, restaurants and video-rental stores.

But as more residents do move in, Montgomery-Smith says, downtown has the potential to become a destination where people gather merely to be part of the street life. "When people are going to a destination point, not particularly to purchase something but to just enjoy a sense of place, generally speaking, they spend more money and spend more time," he says.

Craig Heller believes that 50 market-rate residential units per block is what is needed to generate that critical mass to sustain downtown, and he's doing his part to add to the numbers. His next project is the 1891 Bell Telephone building, 920 Olive St., where he will begin façade restoration this fall. He plans to build rental loft apartments on the third through seventh floors, with offices on the second floor and a restaurant and brewpub on the first floor and basement levels. He also owns the Louderman Building at 11th and Locust streets, where, next spring, he plans to begin construction on the 12-story building -- a mix of office, retail and loft condominiums.

Heller believes people will continue to be drawn to downtown for the same reasons he has been. His new home will be on the top floor of the 10th Street Lofts. "You're real close here," Heller says as he stands on the rooftop deck of his building. "I can walk a block to work. You can go two or three blocks and be on the MetroLink. You can walk a few blocks to the Rams; you can go over here and watch the Cardinals. You can go to Charlie Gitto's. Here, you really feel like you're in the middle of downtown. You've got great views. You're high up."

Those who choose to live downtown now, Heller says, will bring about the city's transformation in a way that nothing has before. "We have a chance right now, a historic opportunity to rebuild downtown better than it's ever been. This is the most important thing -- this is the answer. Will the convention-center hotel solve downtown's problems? No. It's just like every other big project we did -- the Arch, Busch Stadium, the Dome, St. Louis Centre, Union Station and on and on. What will change downtown is people living downtown. If people lived here, then all the good things will follow. There will be retail at the street level -- the coffee shops, the little grocery stores. Housing will be what changes downtown. Those people will make it a neighborhood, will bring the retail back, will make it feel like we want it to feel -- like other big cities."